Analysis: “Acquisitions by Joint Ventures and Community Dimension: The General Court Reaffirms the Notion of ‘Undertakings Concerned’ in HeidelbergCement and Schwenk v. Commission (T-380/17)” by David Pérez de Lamo
On 5 October 2020, the General Court dismissed an action for annulment brought by HeidelbergCement and Schwenk against the Commission’s Decision (M.7878) to prohibit the acquisition of Cemex’s Hungarian and Croatian subsidiaries through their full-function joint venture (T-380/17 – as reported here).
By their first plea, the applicants claimed that the Commission was not competent to review the concentration because it did not have a Community dimension pursuant to Article 1(2) of the Merger Regulation, which requires that ‘the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million’. In the applicants’ view, the turnover of the parent companies should have been attributed to the joint venture, instead of being assessed separately, because the notion of ‘undertakings concerned’ comprised only the full-function joint venture, as the acquirer, and Cemex’s subsidiaries, as the target (paragraph 95). Given that the turnover of the target fell far below the relevant threshold, the applicants concluded that the merger lacked a Community dimension.
To support this conclusion, the applicants relied on paragraphs 145 to 147 of the Jurisdictional Notice (JN), which provide guidance to determine which are the undertakings concerned in an acquisition by a joint venture (paragraphs 100-108). Taking on a very narrow (and convenient) reading of these provisions, the applicants claimed that the Commission can only look at the economic reality of the operation to determine which are ‘the [actual] players behind the operation’ (that is, the parents or the joint venture) in two scenarios: (i) when a ‘shell’ company is set up specifically for acquisition purposes (paragraph 145 JN), or (ii) where it is obvious that a full-function joint venture is being used as a mere vehicle (paragraph 147 JN). In the applicants’ view, the notion of undertakings concerned should be construed narrowly and predictably, so it cannot depend on a factually-complex assessment made by the Commission on a case-by-case basis (paragraphs 100 and 104). Otherwise, it would infringe the principle of legal certainty and force the merging parties to consult the Commission in every case (paragraphs 127-128).
The General Court firmly rejected all of these arguments. As the General Court recalled, even if a joint venture is full-function and so economically (or operationally) autonomous, it does not necessarily make its own strategic decisions (paragraph 112). Otherwise, there could simply never be joint control over a ‘joint venture’. Indeed, direct or indirect links may exist between a full-function joint venture and its parent companies in many other circumstances than the single two noted by the applicants (paragraphs 111 and 114). In this respect, the General Court dismissed the applicants’ narrow reading of the Jurisdictional Notice, highlighting its non-exhaustive character by pointing at a series of open-ended provisos (paragraphs 118-121). The General Court thus concluded that ‘it is necessary to take into account the economic reality of the real players behind a concentration in accordance with the circumstances of fact and law specific to each case’ (paragraph 116). In doing so, the Commission has to consider ‘all the relevant elements’ (or ‘a consistent body of evidence’), without limiting itself to the exemplifying factors laid down in paragraph 147 of the Jurisdictional Notice (paragraph 122).
In essence, the General Court concluded that the determination of the undertakings concerned does not depend on the formal or superficial appearance of the transaction, but on its underlying economic links. Clearly, if this were not the case, merging parties would be able to easily circumvent the notification obligation stemming from the EU Merger Regulation. This approach is nothing new to the Commission’s decisional practice as illustrated by Warburg Pincus/General Atlantic/Unicredit/Santander/SAM/Pioneer (COMP/M.7877, paragraph 17) and TNT/Canada Post, DBP Postdienst, La Poste, PTT Post & Sweden Post (Case IV/M.102, paragraph 10). Furthermore, the General Court’s findings are consistent with the Jurisdictional Notice’s approach in acquisitions of joint control over newly-created (paragraph 139 JN) or pre-existing companies (paragraph 140 JN) and in changes in the quality of control of an existing joint venture (paragraph 143 JN), as well as with its general dictum that ‘the undertakings concerned are those participating in a concentration’ (paragraph 129 JN).
Finally, the General Court found that performing the economic reality test on a case-by-case basis would not violate the principle of legal certainty because (i) the merging parties ‘will necessarily be aware, from the negotiations surrounding the concentration, of the degree of involvement of the joint venture’s parent companies’ and, in case of doubt, they may always (ii) request that information from the relevant company (paragraph 133), (iii) take expert advice as ‘diligent economic operators’ (paragraph 134) or (iv) contact DG Competition for informal guidance (paragraph 135).
David Pérez de Lamo is a Legal Consultant at a law firm and holds an LL.M. in EU Law and Economic Analysis from the College of Europe (Bruges). He has published various contributions in EU competition law and constitutional law.